Through competition. In a free market, small businesses compete with each other, and they succeed or fail in terms of the size of their profit margins.
For the past several decades, we’ve seen a steady decrease in the average income of small businesses across the country. In fact, in the first five years of this century, the income of small small businesses has fallen more than 11 percent, from 2 percent of total employment to less than 1 percent of total employment.
Even though Americans earn less today than they did 10 or 15 years ago, the reality is that Americans are making more money than ever. The chart below shows the average pay of the top 10 percent of earners and the average pay of the bottom 60 percent of households, for the period 1965-2014. Over the past 50 years, workers have seen their incomes grow by more than twice as much.
The chart above is the median American income over the past decade, adjusted for inflation. Since 1965, inflation-adjusted median household income has increased by more than 25 percent. Meanwhile, wages have stagnated.
This doesn’t just happen in the U.S. The fact is that global competition is increasingly putting downward pressure on wages. In Canada for example, the average Canadian worker is making $22.72 an hour today, compared with $35.88 five years ago. This is much better than wages being paid in Canada are in the U.S., where median wages have fallen from about $35 an hour in the 1970s to the current $23.22 an hour.
In fact, the U.S. has the highest median wages on the world. The U.S. wage gap has widened over the past decade to become the widest in the OECD. This is not just a product of the economy: wages for college graduates have also eroded because of the difficulty many graduates face finding jobs.
How do people get free money without government support? Through competition. But even in a highly competitive free market, some businesses receive taxpayer grants to continue their operations. The U.S. State Department gave some $300 million to non-profits through the General Provisions Program (GPP) in 2012. The U.S. Department of Housing and Urban Development (HUD) provides financial help to local governments in areas of poverty, particularly for low-income housing.
These programs allow businesses to continue operating while competing for the public’s business. They also force smaller companies to either raise prices or reduce jobs. That has had
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